U.S. crude oil exports to Asia are approaching their lowest level in seven years due to a significant increase in transportation costs and disruptions caused by the Iran war. According to obtained data, the cost of chartering an oil tanker for a trip to the Pacific Ocean has reached nearly $80 million.
Decrease in Crude Oil Orders to Asia
Asian refineries' orders for U.S. crude oil for delivery in November have decreased by approximately 50%, reaching 24 to 26 million barrels this month. This significant drop in orders, based on ship tracking data from Kpler and Vortexa, indicates a decrease in demand for U.S. crude oil in the Asian market.
Increase in Transportation Costs and Its Impact on Prices
The cost of chartering tankers on the route from the Gulf of Mexico to China has increased more than threefold, reaching around $60 million. This price increase, compared to the average chartering costs of less than $8 million over the past five years, indicates serious disruptions in the oil market. These costs do not include the price of crude oil, which is currently trading at around $100 per barrel.
Randy Hawkins, the oil trading manager at Valero Energy, said in a conference call with analysts, "The main story in the market right now is transportation costs." He also stated that transportation costs have risen so high that refiners are effectively paying between $30 and $35 to transport each barrel of oil from the Gulf of Mexico to Asia, which is nearly seven times the cost of last year.
Challenges in Securing Tankers and Their Impact on the Market
Due to the increased demand for smaller tankers to reduce the risk of attacks in the Strait of Hormuz, the process of transferring oil to larger tankers in the Gulf of Oman has become a major challenge. This inefficient process creates a need for more tankers to transport the same amount of oil. Additionally, rising insurance rates and fuel costs have also contributed to the increase in transportation costs.
Furthermore, due to decreased demand from Asia, the price of exported crude oil from the Permian Basin has significantly decreased and is now trading 25 cents above the futures contracts at the Magellan East Houston hub. This comes after the price of this oil was above $3 for the past six weeks.
Overall, the decrease in demand from Asia and the increase in transportation costs are directly impacting the U.S. oil market, and forecasts indicate that if this trend continues, U.S. crude oil exports to Asia will reach their lowest level in seven years.
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